Business Judgement Rule Case Law

The business judgment rule is a presumption that in making a business decision the directors of a corporation acted on an informed basis in good faith and in the honest belief that the action taken was in the best interests of the company smith v.

Business judgement rule case law. Historically the business judgment rule as interpreted by state and federal courts presumed that directors of corporations making decisions on behalf of shareholders were correct if they acted 1 in good faith 2 on an informed basis 3 in a disinterested manner 4 with due care and 5 without discretion or waste. Stated another way the business judgment rule under florida law will adequately shield a director from potential liability no matter how poor his business judgment. The business judgment rule is invoked in lawsuits when a director of a corporation takes an action that affects the corporation and a plaintiff sues alleging that the director violated the duty of care to the corporation.

The business judgment rule 10. 40 it insulates directors from liability for negligence and creates a presumption against judicial review of duty of care claims and substantive merits of the. It is rooted in the principle that the directors of a corporation.

The business judgment rule is a case law derived doctrine in corporations law that courts defer to the business judgment of corporate executives. However poor business judgment coupled with bad faith fraud illegality or oppressiveness will lead a court to disturb a board decision and hold directors personally liable. The business judgment rule rule the most prominent and important standard of judicial review under corporate law protects a decision of a corporate board of directors board from a fairness review entire fairness under delaware law unless a well pleaded complaint provides sufficient evidence that the board has breached its fiduciary duties or that the decision making process is tainted such as with a lack of independence or interestedness.

While the case we discussed was decided under texas law the principles underlying business judgment rule are similar in other jurisdictions. The rule exists in some form in most common law countries including the u. The following is an example of a case law defining business judgment rule.

Van gorkom 488 a 2d. The business judgment rule has been described in delaware case law as follows. The court ruled that israeli corporate law now includes the business judgment rule and its derivative arrangements subject to the following qualifications.

11 if these criteria were met directors fiduciary obligations were satisfied. Are clothed with presumption which the law accords to them of being in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge. Business judgment rule plays an important role in preventing courts from considering the appropriateness of substantive decisions made by board members on the basis of business judgment.